LIMITED BRANDS INC. $20 (New York symbol LTD; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 340.3 million; Market cap: $6.8 billion; WSSF Rating: Average) operates two main retail chains: Victoria’s Secret (lingerie) and Bath & Body Works (soaps and bath oils). It also operates the La Senza (lingerie) chain, in Canada and 44 other countries.
Last year, the company sold 75% of its Express and Limited casual clothing chains, which generated lower profits for it than its other operations.
In Limited Brand’s second fiscal quarter ended August 2, 2008, sales fell 11.5%, to $2.3 billion from $2.8 billion, partly due to the Express and Limited transactions in the year-earlier quarter. Same-store sales fell 7%. However, earnings per share before one-time items rose 35.0%, to $0.27 from $0.20 a year earlier. Most of the gain came from a successful cost cutting plan.
The company now plans to expand internationally. Right now, foreign operations supply just 10% of its total sales. It recently announced plans to open six new Bath & Body Works stores in Canada. Limited Brands experience with the Canadian-based La Senza chain should help it with this expansion.
Another area of growth is sales through catalogs and the Internet. Direct sales at Victoria’s Secret grew 7% in the latest fiscal quarter. The company’s new distribution center should improve the accuracy of orders, and boost the overall efficiency of the direct sales business.
The stock now trades at 13.2 times the $1.52 a share that Limited Brands will probably earn in fiscal 2009. The $0.60 dividend still seems secure, and yields 3.0%.
Limited Brands is a buy.
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